Microsoft Launches New Round of Layoffs, About 500 Employees Affected, Mainly in Xbox Gaming Division
Microsoft has launched a new round of layoffs, affecting about 500 employees, primarily in the Xbox gaming division, with a small number of positions coming from other units such as cloud and artificial intelligence.
Xbox executive Matt Booty stated in an internal memo that 268 gaming positions are being eliminated, covering Halo Studios, other first-party studios, as well as Xbox gaming studio management and central functions. Together with the actions taken in July and studio divestitures, approximately three-quarters of the previously announced restructuring has been completed.
About 300 people in Washington state are being laid off, with 268 from the gaming side of the company. Two months ago, the company laid off 4,800 employees, about 2.1% of its global workforce, including 605 in Washington, with Xbox immediately cutting about 1,600 positions at that time and planning to reduce gaming positions by another 20% in the current fiscal year.
Since April, Xbox has only used Xbox as its department name, led by Asha Sharma in what is termed a reset. In July, she stated that the business was not healthy, with a goal of reaching about 1 billion daily active users. The company is also moving some studios to operate independently to retain intellectual property and ongoing projects. The global workforce has decreased from about 228,000 to approximately 223,000, marking the first net decrease in a decade.
Last year, the company laid off about 15,000 employees, including about 3,202 in Washington; in June this year, it offered voluntary retirement to about 8,750 eligible employees, with about 30% accepting. HR head Amy Coleman wrote in a July memo that the laid-off positions were not directly replaced by artificial intelligence, but AI is changing the way work is done. At the same time, the company continues to invest hundreds of billions of dollars in AI infrastructure.
The layoffs are part of an event-driven restructuring, not a signal of overall contraction for the group. Buyers continue to price capital expenditures for cloud and AI, while sellers treat the headcount from game acquisitions as a cost item in internal budgets. Funding is shifting from studio salaries and middle management to data centers and model training; the beneficiaries are the cloud and AI divisions designated as growth priorities, while the pressured parties are first-party studios, Xbox central functions, and gaming positions in Washington state.
Source: Public Information
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After transforming gaming into a second growth curve with Activision Blizzard and ZeniMax, Microsoft has been continuously laying off employees from 2025 to 2026 to scale back. Nadella has staked capital expenditures on AI infrastructure, while gaming is being framed as a business that needs to prove its health. The reset under Sharma shifted the goal from owning studios to owning distribution and daily active users, and Booty's memo linking the 268 layoffs, studio divestitures, and "three-quarters progress" indicates that layoffs are being treated as project milestones rather than one-time bloodletting.
The capital path is to exchange gaming headcount for computing bills. The voluntary retirement plan offered about $900 million to approximately 7% of eligible employees in the U.S., while 4,800 were laid off in July, and about 500 were redeployed to priority positions internally within a month. The company claims that positions are not being replaced by models, while simultaneously converting sales and consulting into roles selling AI products. After the studios are divested, the headcount leaves the balance sheet, but intellectual property can remain in the distribution network.
In comparison to Meta's back-and-forth layoffs between applications and reality labs, and Sony and Take-Two's contraction of first-party studios at the end of the console cycle, Microsoft is in a control phase of digesting acquisitions: after the Activision deal is completed, profits must be delivered, and if Xbox fails to meet the capital returns of cloud business, it will be transformed into a smaller content mix with larger platform goals. The industry is not expanding categories but shifting content production from wholly-owned studios to exitable asset packages.
Structural changes are reconstructing the industry chain. Gaming used to be priced based on studio ownership; now it is priced based on the ability to serve platform daily active users. The mechanism is that AI capital expenditures have raised the internal cost of funds, leading to the removal of slower-return content divisions first; studios can be sold or operate independently, while distribution rights and account systems remain with Microsoft. Whoever controls the entry point does not need to maintain a full production line.
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Acquired headcount will be shed during the next capital expenditure.
The platform needs daily active users, not necessarily owning studios.
Claiming positions are not replaced by models, the headcount will still be allocated to model bills.